In Defence of Greece: 6 Myths Busted

by Joseph Leigh, Lewis Bassett & Michael Walker

30th June 2015

Events in Greece are coming to a head. Over the weekend the leadership of Syriza offered the Greek people a referendum on whether to accept austerity measures – including cuts to pensions and public sector spending, and labour market de-regulation – as the conditions for obtaining funds with which to service its debt repayments. However, by all accounts Greece may be forced to leave the Eurozone before the end of the week. As Syriza has been consistently represented in the mainstream media as an irresponsible and ideologically-driven leftist government, it is important to unpack the seemingly common sense arguments against Syriza.

1. ‘People have to pay their debts. Why shouldn’t Greece?’

When someone lends money to someone else with the intention of making a profit, they take on a risk, as does the person borrowing the money. Because both sides take on a risk with the hope of some future gain, they ought to share responsibility for the outcome. This is why debtor-prisons – common in the 18th and 19th centuries – were abolished: they unfairly punish one party for a scenario created by both lender and borrower. However, neither Europe’s banks which took on risky debts, nor the political institutions which made the policies that encouraged unsound financial practices, are willing to accept any responsibility for the current situation. Vital public services are being destroyed while the Greek economy shrinks because no one apart from Greece is shouldering responsibility for what is a shared failure.

Second, 90% of the bailout money was spent on bailing out the banks, not on Greek spending. The majority of Greece’s national debt (78%) is owed to the ‘Troika’ – the IMF, the EU Commission and the European Central Bank. These institutions lent money to the Pasok government so they could pay back Greek and foreign banks who had recklessly lent money to all European countries before the global financial crisis of 2008-9. When it became obvious that the banks’ predictions about the economic growth of countries like Greece and Ireland were wrong, they immediately demanded their money back. This is what sparked the debt crisis, and led Greece to request bailout loans. The money Greece owes to the Troika was used to bailout bankers who’d got their sums wrong. Only 10% of the loans Greece received from the Troika have reached ordinary Greek people.

Third, if the aim is for Greece to pay back its debts, the Troika’s current policies make no economic sense. If it is to be able to pay back some of its debts Greece’s economy needs to grow, but the consequence of Troika’s policies has been the opposite. As the Syriza government have been arguing: Greece needs to invest to grow its way out of recession, just like Germany did in 1953 after its foreign debts were cancelled and its repayments tied to economic growth.

2. ‘Greece shouldn’t have borrowed to begin with.’

This idea ignores the structural reasons for Greece’s borrowing. All countries borrow money to invest in their economies and compete in the world economy. By 2009 the smaller Eurozone economies – Greece, Portugal, Ireland, Spain – were all burdened with massive debts because their borrowing failed to make them more competitive. As Costas Lapavitsas has shown, the reason for this is simple: the German government froze wages so as to out-compete countries like Greece. Given its superior economic and technological starting point, Germany was always going to win if its wages were low enough. Greece therefore built up a big trade deficit which was proportional to the German trade surplus. So Greek borrowing was actively encouraged by Germany which is now demanding Greece shoulder the blame for what was a failure of the entire Eurozone.

The conditions imposed by the Troika are the same as the Structural Adjustment Programmes (SAPs) which the IMF has been imposing on debt-stricken countries (primarily in the global south) since the 1980s. In Greece, as in those other countries which have accepted IMF loans, the vast majority of the money provided by the IMF will go straight back into the coffers of multinational banks. As per the Greek case, SAPs demand wholesale privatisations, financial and market liberalisation, government austerity, and the destruction of labour rights. These are the exact opposite policies which the Greek population voted for by electing Syriza.

The conditions attached to IMF loans should be an anathema to the left. Yet insiders too, such as Joseph Stiglitz – former Chief Economist at the World Bank – argue the effect of the IMF’s conditional loans has only been to enrich global financial institutions. Even right wing economists who historically approve of the IMF’s behaviour are coming out in opposition of the terms being imposed on Greece by the Troika. This is because whereas the IMF would usually force investors to take a significant debt haircut – i.e. cancel some of the debt owed by the debtor country in return for structural adjustment – the pressure from Eurozone governments and a desire to crush progressive movements in Europe meant Greece was not offered such restructuring.

4. ‘Why can’t they sort it out themselves?’

In a globalised world, economies are interdependent. A trade surplus in an exporting country implies a trade deficit in an importing one, if, as was the case with Greece and the rest of the Eurozone, the exporting countries adopt policies to diminish the economic potential of their rivals. Economic crises therefore require collective solutions rather than the beggar-my-neighbour policies Germany and the Troika are opting for at present.

At the moment the Troika is actively preventing Greece from sorting out its economy by enforcing austerity, which is having a negative effect on growth rates. Because Greece doesn’t have its own central bank it can’t use monetary policy to escape recession, so what the government has been asking for in negotiations with the Troika is debt relief which would allow it to invest in economic growth. But the Eurozone as a whole has rejected these standard Keynesian policies in favour of harsh cuts to investment and public services.

5. ‘Shouldn’t Syriza have tried everything it could to stay in the Eurozone?’

It did. Syriza is widely portrayed by the media as having turned its back on the Eurozone, yet the situation is the exact opposite. At the start of this year Syriza was elected with a mandate both to de-escalate the effects of austerity while remaining within the Euro. Despite some voices inside the party arguing against the so-called ‘good Euro strategy’, Syriza’s leadership have tried relentlessly in negotiations to balance their popular anti-austerity electoral mandate against the will of the creditors.

As recently as Thursday last week it appeared that Syriza’s leadership was willing to accept compromises in the form of further austerity in order to obtain further bailout funds. Negotiations broke down when, late in the day, the final deal offered by the institutions contained neither debt relief nor investment funds, and so if accepted would draw Greece into seemingly endless depression.

6. ‘This doesn’t matter to me.’

Syriza’s negotiations with the Troika have fulfilled a pedagogical role of showing the unwillingness of undemocratic institutions such as the EU and IMF to respect the democratic will of sovereign nation states. Moreover, the unwillingness of the Troika to tie debt repayments to economic growth demonstrates the need to produce political and economic strategies that suggest ways out of the neoliberal economic paradigm.

Greece being allowed to go to the rocks is an outcome that will restrict democratic movements throughout Europe. It will represent the defeat of the first serious democratic challenge to a technocratic neoliberal order in Europe. There is only one party in Greece which will gain from such a scenario: Golden Dawn.